NEW DELHI Indian and French negotiators were haggling on Friday over the price of 36 combat planes for the ageing Indian air force, officials of the two nations said, just days before President Francois Hollande visits New Delhi to cement commercial ties.

The fighter jet deal is part of a $150-billion military modernisation drive India has launched, drawing global arms makers into one of the world's biggest markets.

The leaders agreed to scale back the original plan for 126 Rafale planes to just 36 in flyaway condition, to meet the Indian Air Force's urgent needs, as it faces China and Pakistan.

But even the smaller deal ran into problems over the unit price of the planes and other contract terms.

France's envoy to India, Francois Richier, said the two sides were holding talks in New Delhi but he could not say for sure if they would strike a deal ahead of, or during, Hollande's visit, which begins on Sunday.

"Discussions are taking place, can't say what will be the outcome," he told reporters. "It's not finalised yet. It's a complex negotiation. I am hopeful, but hopeful does not mean certitude."

An Indian foreign ministry spokesman said the deal for the 36 planes was in an advanced stage.

Hollande will be the guest of honour at India's Republic Day parade on Jan. 26, in a sign of deepening political and commercial ties. U.S. President Barack Obama was given that honour last year.

Modi will welcome Hollande in Chandigarh, designed in the 1950s by the French architect Le Corbusier. It is one of 100 "smart cities" Modi has designated for rapid development, in which the French will be partners.

The two sides are also discussing a plan by French nuclear company Areva (AREVA.PA) to build six reactors in western India, as part of Modi's push to ramp up nuclear capacity.

But negotiations have been stuck over the price, and French utility EDF's (EDF.PA) recent takeover of Areva's reactor business has slowed progress.

"EDF will be in the lead now, that is creating a change in the way nuclear negotiations will be conducted," Richier said.

A French diplomatic source said Rafale was far from being the main reason for Hollande's visit, but it would provide an opportunity to move the deal towards completion.

(Additional reporting by Krista Mahr in New Delhi and Elizabeth Pineau in PARIS; Editing by Clarence Fernandez)

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